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After surviving a lackluster stretch, emerging market ETFs recoiled lately as a relief rally bolstered the demand for risky securities. The deterrents that came in its path earlier seem to have cleared as the U.S. rate hike bets have taken a backseat marring the price of the greenback at the start of 2016.

Impressive gains were noticed in commodity prices in the wake of a weaker dollar. Also, hopes of further stimulus from the Euro zone and Japan, China’s relentless efforts to shore up its waning economy and the hunger for higher current income (as a drive for safety encouraged the need for fixed-income investing which in turn affected U.S. treasury bond yields) made emerging market space a rising star lately.

The winning trend can be validated by 10.4% and 11.1% returns realized respectively by the two most popular ETFs – iShares MSCI Emerging Markets ETF (EEM) and Vanguard FTSE Emerging Markets ETF (VWO) in the past one month (as of March 8, 2016) against gains of 7.6% for the all-world ETF iShares MSCI ACWI (ACWI) and a 7% uptick in the S&P 500-based ETF SPDR S&P 500 (SPY) (read: Emerging Markets Back On Track: 5 Outperforming ETFs).
Can the Gains Last?
As of now, the drivers of the rally look fragile. Investors may cheer the recent reserve requirement ratio cuts in China, but it has hardly boosted the Chinese markets. Rather, weak Chinese trade data has been pushing its market down along with other emerging market securities. On the other hand, the recent rally in oil prices is anything but stable, keeping a check on the broad-based global market recovery.
Meanwhile, the U.S. economy came up with some upbeat economic numbers on manufacturing, jobs, inflation and consumer confidence. All these once again brought back rate hike talks on the table. If any such cues are given by the Fed in its upcoming meeting, the emerging markets will once again lose luster.
All in all, the operating backdrop is not all bright. So, investors should practice caution while targeting this investing arena. Below we highlight a few ETFs that can be considered in the days to come (see all emerging market ETFs here).
High Yield – Emerging Markets Equity Income Fund (DEM)

As foreign investors normally park their money in the riskier emerging market bloc for higher yields, what could be a better choice than DEM? This $1.31 billion-ETF holds about 320 stocks. Though the fund is heavy on trouble zones like China, Russia and Brazil, and might see a sell-off ahead,a 30–day SEC Yield of 6.29% would provide some protection against capital erosion.

Also, the fund has highest exposure in the relatively better-placed zone Taiwan. The fund has a Zacks ETF Rank #3 (Hold) and is up about 6% this year (as of March 8, 2016) (read: 3 Safe High Dividend ETFs to Beat the Volatile Market).
Low Volatility – iShares MSCI Emerging Markets Minimum Volatility ETF (EEMV - Free Report)

A low volatile portfolio is yet another key to long-term success. For investors seeking exposure to the emerging markets, EEMV could be an intriguing pick. The $2.9 billion-ETF charges 25 bps in fees (read: Minimum Volatility ETFs: Fact or Over-estimated Hype?).

In total, the fund holds over 250 stocks in its basket with each accounting for less than 1.71% share. The fund has a slight tilt toward financials with 26.8% share, while information technology, telecommunication services and consumer staples round off the next three spots. The fund has retreated 0.2% in the year-to-date frame (as of March 8, 2016), was up 6.2% in the last one month and it has a Zacks ETF Rank #3.

High Quality – SPDR MSCI Emerging Markets Quality Mix ETF (QEMM - Free Report)

High quality ETFs are generally rich on value characteristics as these focus on stocks having high quality scores based on three fundamentals factors – the performance of value, low volatility and quality factor strategies.
This fund follows the MSCI Emerging Markets Quality Mix Index, holding a large basket of 744 stocks. It has amassed about $97.3 million and charges a low fee of 30 bps per annum. The fund puts more weight in China, Taiwan and South Korea. The Zacks Rank #3 fund was up 7.7% in the last one month but off 1.2% year to date and it yields about 2.13% (as of March 8, 2016).

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